Facebook Inc (NASDAQ:FB) has been in the hot seat since the election to say the least. Pizzagate perhaps represented the pinnacle of the fake news controversy. Luckily, it ended with with no one killed. The question for Facebook stock holders, though, is whether it’s just as lucky (from an investment standpoint) that the company has now decided to crack down on fake news.
The potential problem with the decision is the alienation of conservative users. The process for policing fake news, in a nutshell, is as follows: Users can flag stories they think might be fake, causing the stories in question to be sent to fact checkers from legitimate organizations like The Associated Press and The Washington Post.
FB cited easier reporting and the labeling of disputed stories as two of four pieces of its crackdown.
The other two: “informed sharing,” which includes “testing” a ranking system that downgrades articles which are shared less after being read, and “disrupting financial incentives for spammers.” But it’s the third-party fact checking that’s arguably the problem for the company and possibly Facebook stock.
Is Fake News Really a Problem for FB?
Conservatives who have long mistrusted mainstream media could also mistrust the neutrality of such organizations, which many label as liberal-leaning. Even members of the mainstream media have cited problems with the site’s attempts to curate Truth with a capital T.
For Facebook stock investors, though, I believe there is little to worry about. The conversation surrounding FB right now is not — at least not yet — directly relevant to the stock. Instead, it’s a reflection of a philosophical debate around information sharing and policing. It’s a reflection of questions we as a country have about the media’s role in society and politics. The fact that FB is at the center of these questions isn’t a red flag for the company; it actually reinforces its relevance.
And even if conservative users don’t trust the news feed’s fact checking, it’s unlikely that they will be distrustful enough to actually deactivate their accounts. They may find other avenues for getting their news, in theory, but as long as they’re on Facebook for other reasons — like staying in touch with friends — they will be giving the company and, in turn, its advertisers the eyeballs that drive revenue. And quite frankly, that’s all that really matters on Wall Street.
Bottom Line on FB Stock
Put another way, FB stock’s relevance doesn’t end with its news feed. In fact, it doesn’t even end with Facebook itself. Instagram is still a rising social media star. And regardless of your personal feelings on its ripoff of Snapchat’s Story feature, the update proves the platform is giving users (especially young ones) what they want.
Add it up, and the overall relevance of the platform shows up in FB stock’s continued growth, too. Revenue is on tap to expand by more than 50% this year, translating to more than 80% earnings growth. Earnings estimates for Facebook stock have been marching steadily higher — always a good sign.
FB stock is not going to get crushed by some political polarization or philosophical debates about news and media. It’s a diversified media company, and the recent controversy is a reminder of just how strong of a force it is to be reckoned with more than anything else.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
